News that debt-laden giant Premier Foods plans to axe 900 jobs, close two bakeries and restructure its distribution system was greeted with fury by unions and applause by City analysts.

Unite the union and the Bakers Food and Allied Workers Union (BFAWU) have called for urgent talks with management describing the news
as “devastating”.

Jennie Formby, Unite’s national officer for food and drink, said: “This is just another stage in the disaster story that has been Premier Foods over recent years, which has consistently struggled ever since its decision to buy Hovis in 2006.

“At the time, this strategy was described as ‘doomed’ by some analysts and it has resulted in the company being saddled with massive debts.”

‘Doomed’

Formby added that while management claimed the job losses were the result of competition and wheat prices, the reality was that members were “continuing to pay the heavy price of Premier’s failure to make a success of the business”. The union was extremely concerned about the future of the remaining business.

John Higgins, organising regional secretary told FoodManufacture.co.uk: “This is really shocking news that we received when the night-shift ended at 5am this morning [November 20]. “Management said we should not have been surprised to hear this news after losing the [Co-operative] bread contract but we expected them to have some plans in place.”

John Hemming, Liberal Democrat MP for Birmingham Yardley, said: "I would rather see what we can do to protect people rather than just assume it's going to go ahead as planned.”

But leading City analysts described Premier’s decision as the least worst alternative.

Graham Jones, analyst with Panmure Gordon, said: “While in some respects the move can be seen as running to stand still (a £28M spend to effectively hold profits flat next year), in our view it is much better than the alternative of being more aggressive with pricing in order to regain lost volume which ultimately could damage margins further.”

‘Very large pension deficit’

Panmure remained cautious about Premier bearing in mind what Gordon described as: “the dilution from recent disposals, the still very high gearing and the very large pension deficit”. Pamnure maintained its ‘Hold’ recommendation on Premier’s stock.

Martin Deboo, analyst with Investec Securities, said: “We see this as a decisive and welcome move to improve long-term profitability and create option value on further rationalisation or an eventual, profitable exit.”

Deboo said the news was “less than a total surprise given recent announcements”, adding that the marginal economics look attractive and sensible.

“The Co-op contract was intensive to serve, representing close to half of direct-to-store drops in bread,” said Deboo. “Relative to its about 15% contribution to sales, Premier is reducing headcount by about 18% and delivery routes by about 30%. The resultant question is why the move is being guided to profit-neutrality only?”

Deboo said the assumption was the Co-op business had an above-average gross margin and Premier was allowing for knock-on impacts elsewhere.

Better platform

“Ultimately, this feels like a platform for better long term profitability to us,” he concluded.

Capacity reduction in plant bread could offer scope for margin expansion in due course.

But the struggle for Premier is still uphill, they added. “Premier is still operating within tough markets, where volume growth is hard to come by. The group also remains burdened by debt, albeit is no longer looking over its shoulder from a financing perspective given the time that recent disposal activity provides.

“And it remains encumbered by considerable pension liabilities. As such, we continue to applaud the decisions by messrs Clarke and co., but the struggle is still uphill.”

Premier’s plans

Close two bakeries − Greenford, in west London and Birmingham – next year

Simplify its bread distribution network by cutting about 130 routes

Closing four distribution centres

Axing 900 jobs

This content is copyright protected

However, if you would like to share the information in this article, you may use the headline, summary and link below:

Related products

Live Supplier Webinar

04-Feb-2015 - To mark the launch of the Bakery Market Report 2015, British Baker brings together a panel of experts to discuss the challenge of bakery retail in the UK. The exclusive web event will look at the trends of the past 12 months...

Live Supplier Webinar

18-Feb-2015 - Campylobacter is the most common cause of food poisoning in the UK. About four in five cases of campylobacter poisoning in the UK come from contaminated poultry – that’s an estimated 280,000 people a year. As part of the ongoing MTJ...

On-Demand Supplier Webinar

08-Dec-2014 -
Discover the latest practical approaches to minimising food fraud. This session looks at the potential economic impact to your business and how best to mitigate the risks by holistic solutions that include the new BRC Food V7. and the effective...

Data sheet

16-Feb-2015 - Being driven by legislative demands and customer requests means that demonstrating traceability is often viewed as simply a business cost that eats away at already tight profit margins.With our five minute guide you will stop seeing it as a burden...

Product brochure

26-Jan-2015 -
A collaborative platform with unparalleled visibility and efficiency to your supply chain.
The Authenticate Pyramid allows you to track, analyse and understand your supply chain end to end while saving your business time, resources and money.
Companies can connect and collaborate with...